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Welcome to the November 2012 edition of my monthly Gold Letter.

Hurricane Sandy hit us hard in the northeast, but we're back on our feet. I decided to delay the release of this month's edition until most of our subscribers (and our Manhattan offices) had their power restored. Best wishes to everyone who was affected by the storm.

These natural disasters do present a window into how tenuous the comforts of civilization can be. Economically ignorant government measures like anti-gouging laws can be devastating when the stakes are high. Right now, there are lines at gas stations across New York and New Jersey, but you can still get a can of gas for the right price on Craigslist. That's why I always encourage financial independence. As many of you know, you can't get far in this world without money in hand, and debit cards don't count when the power is out or inflation runs wild.

Given all this turmoil, it may seem odd that precious metals are in retreat. This is not due to the weather but rather - as far as I can tell - election optimism and a misunderstood jobs report. The good news in the jobs report was not that there are more jobs available, but that more people have begun looking for work again. And the unreported bad news? Real wages are declining faster than ever.

That's why you take your paycheck and invest it. Don't save cash beyond what you need for short-term expenses. And keep at least 5-10% in physical precious metals.

In this issue:

Jeff Clark forecasts the price of gold a year from now.

J. Luis Martin explains why if Europe topples, Americans will be picking up the pieces.

Lampoon the System shows who killed the goose that laid the golden eggs.

We explain why you might choose physical gold over ETFs.

And, as always, we close with summaries of the major news in the precious metals' markets this past month.

Good luck and good gold,

Peter Schiff

CEO

Euro Pacific Precious Metals

WHEN INFINITE INFLATION ISN'T ENOUGH

By Peter Schiff

If no one seems to care that the Titanic is filling with water, why not drill another hole in it? That seems to be the M.O. of the Bernanke Federal Reserve. After the announcement of QE3 (also dubbed "QE Infinity") created yet another round of media chatter about a recovery, the Fed's Open Market Committee has decided to push infinity a little bit further. The latest move involves the rolling over of long-term Treasuries purchased as part of Operation Twist, thereby more than doubling QE3 to a monthly influx of $85 billion in phony money starting in December. I call it "QE3 Plus" - now with more inflation!

Inflation By Any Other Name

In case you've lost track of all the different ways the Fed has connived to distort the economy, here's a refresher on Operation Twist: the Fed sells Treasury notes with maturity dates of three years or less, and uses the cash to buy long-term Treasury bonds. This "twisting" of its portfolio is supposed to bring down long-term interest rates to make the US economy appear stronger and inflation appear lower than is actually the case.

The Fed claims operation twist is inflation-neutral as the size of its balance sheet remains constant. However, the process continues to send false signals to market participants, who can now borrow more cheaply to fund long-term projects for which there is no legitimate support. I said it last year when Operation Twist was announced, and I'll continue to say it: low interests rates are part of the problem, not the solution.

Interventions Are Never Neutral

Just as the Fed used its interest-rate-fixing power to make dot-coms and then housing appear to be viable long-term investments, they are now using QE3 Plus to conceal the fiscal cliff facing the US government in the near future.

As the Fed extends the average maturity of its portfolio, it is locking in the inflation created in the wake of the '08 credit crisis. Back then, we were promised that the Fed would unwind this new cash infusion when the time was right. Longer maturities lower the quality and liquidity of the Fed's balance sheet, making the promised "soft landing" that much harder to achieve.

The Fed cannot keep printing indefinitely without consumer prices going wild. In many ways, this has already begun. Take a look at the gas pump or the cost of a hamburger. If the Fed ever hopes to control these prices, the day will inevitably come when the Fed needs to sell its portfolio of long-term bonds. While short-term paper can be easily sold or even allowed to mature even in tough economic conditions, long-term bonds will have to be sold at a steep discount, which will have devastating effects across the yield curve.

It won't be an even trade of slightly lower interest rates now for slightly higher rates in the future. Meanwhile, in the intervening time, the government and private sectors will have made a bunch of additional wasteful spending. When are Bernanke & Co. going to decide is the right time to prove that the United States is fundamentally insolvent? Clearly this plan lays down an even stronger incentive to continue suppressing interest rates until a mega-crisis forces their hands.

Also, when interest rates rise - the increase made even sharper by the Fed's selling - the Fed will incur huge losses on its portfolio, which, thanks to a new federal law, will become a direct obligation of the US Treasury, i.e. you, the taxpayer!

Of course, the Fed refuses to accept this reality. Even though a painful correction is necessary, nobody in power wants it to happen while they're in the driver's seat. So Bernanke will stick with his well-rehearsed lines: the money will flow until there is "substantial improvement" in unemployment.

Does Bernanke Even Believe It?

Even Bernanke must have a hunch that there isn't going to be any "substantial improvement" in the near term. I suggested before QE3 was announced that a new round of stimulus might be Bernanke's way of securing his job, but recent speculation is that he may step down when his current term as Fed Chairman expires. Perhaps he is cleverer than I thought. He'll be leaving a brick on the accelerator of an economy careening towards a fiscal cliff, and bailing before it goes over the edge. Whoever takes his place will have to pick up the pieces and accept the blame for the crisis that Bernanke and his predecessor inflamed.

Don't Gamble Your Savings on Politics

For investors looking to find a safe haven for their money, QE3 Plus is a strong signal that the price of gold and silver are a long way from their peaks. Gold hit an eleven-month high at the beginning of October after the announcement of QE3, but the response to the Fed's latest meeting was lackluster. When the Fed officially announces its commitment to QE3 Plus in December, I wouldn't be surprised to see a much bigger rally. For that matter, many are keeping an eye on the election outcome before making a move on precious metals.

However, seasoned readers of my commentary know that short-term trends are not a good reason to invest in physical precious metals. QE3 Plus can only boost the confidence of anyone intent on the long-term protection of wealth through hard assets. No matter who takes office in January, Helicopter Ben Bernanke will continue on the path of dollar devaluation until there is a flight of confidence from the dollar.

If you would like more information about Euro Pacific Precious Metals, click here. For the fastest service, call 1-888-GOLD-160.

WASHINGTON'S EUROPEAN CLIFF

By J. Luis Martín

Although the eurozone crisis did not make it into the US presidential debate on foreign policy in October, Treasury Secretary Timothy Geithner did remark earlier in the month: "We are very worried about the risk of collapse in Europe." Indeed, he should be, for a collapse of the euro would not only send shockwaves through the already fragile world economy, but would also undermine America's own escape strategy of currency debasement. This makes preservation of the status-quo in Europe an essential part of the United States' plan to avert its so-called fiscal cliff - even if it means that Washington has to increase its exposure to the faltering economies across the pond.

Eurozone Civil War: It's North vs. South

Europe is currently divided into those who advocate money printing à la the Federal Reserve - France leads this "Club Med" of economically-troubled nations - and those who insist on enforcing fiscal discipline and a hard currency - the healthier northern economies led by Germany.

Rather than taking the painful, but necessary, first step of balancing their finances, the profligate spenders in the south are calling for the wealthier northern nations to share the burden. They argue that this so-called "debt mutualization" would provide enough temporary stability to allow for orderly reform, while simultaneously paving the way for a more integrated European economy. Meanwhile, the German-led north argues that such a scheme will only further delay reforms that should have already begun (not to mention the questionable morals of taking their taxpayer's money to cover the debts of the irresponsible south).

Street art in Munich, Germany (Photo: Adam Mittag)

Of course, it should come as no surprise that Washington has sided with the south's call for Germany to print and inflate, while simultaneously urging Berlin to absorb some of the outstanding debt. The pressure from Washington is reinforced daily with an endless media barrage of shocking images of popular unrest in Spain and Greece paired with ominous forecasts of increased European misery if government austerity measures continue. The only solution offered by demand-side economists is for everyone to print their way out of the crisis.

Though social unrest and growing misery are certainly threatening the demise of the euro system, such images and headlines fail to tell the real story. For years, the incompetent and corrupt political elites in the southern region have been unwilling to dismantle the programs that benefit their power base at the expense of the taxpayers. Now that there isn't any money left to steal, they're blaming the productive class for the situation. Not surprisingly, the producers are at their wit's end.

Germany has remained adamant that any further bailouts must be conditional upon significant austerity measures and financial reforms on the part of the recipient nations. Brussels is pushing a joint-debt solution by offering Germany the carrot of supranational supervisory powers that would allow the EU to overrule national governments in the areas of financial supervision and budgetary planning. Even if Germany were open to the idea, such supervisory mechanisms will meet strong resistance from member-states skeptical of the anti-democratic EU (which is actually looking more and more like the Soviet model).

All in all, Europe has clearly failed to contain its currency crisis. This is after years of circular bailout mechanisms that avoid joint-debt obligations while promising central bank interventions that are never triggered, and announcing the creation of "firewalls" which fall apart before being erected. The eurozone's ability to endure the difficult process of profound reforms that its highly divergent 17 economies require for the system to survive remains a utopian dream. Looking at the example of Greece, many fear that sudden social and political instability might drive the member-states apart, taking the euro project with them.

Under Pressure

Therefore, the concern today, especially for Washington, is to keep the European utopia alive for as long as possible. To this end, Geithner met with the German Finance Minister Wolfgang Schäuble over the summer in hopes of convincing Germany to adopt the American money-printing strategy. Schäuble made it clear that a full bailout of Spain and more concessions to Greece were off the table.

Developments this fall may force Schäuble to revise his position and show more flexibility, as Spain is on the verge of bankruptcy and Greece may go bankrupt on the 16th of November if no new bailout concessions are approved. Still, it is clear that Germany is not about to succumb to the "all-in" approach demanded by Washington and the EU, nor is it ready to accept fiscal and monetary policy lessons from the US.

The impasse cannot last much longer. As the peripheral economies of the eurozone deteriorate economically and socially, Germany will have to decide once and for all between its limited options: encourage the PIIGS to leave the euro, give in to the south's demands, or exit the euro itself. Germany could make such a decision after its elections in 2013, but that's almost a full year away, and a sudden political disaster in any of the eurozone member-states could trigger the collapse everybody is trying to avoid. The political climate is ripe for just such a disaster.

The PIIGS: Portugal, Italy, Ireland, Greece, and Spain

According to polls, radical-left Syriza Party is now the top political force in Greece and the neo-Nazi Golden Dawn Party is growing fast. In Spain, the economy continues to sink, with over 25% of the working-age population unemployed - while street protests erupt almost daily. Catalonia, the country's wealthiest region, is openly calling for a referendum on its independence from Spain. To make things worse, should the Spanish government miss this year's target deficit of 6.3% (a titanic drop from last year's 9.4%), full foreign intervention would become inevitable - raising the prospects for a full political crisis in the eurozone's fourth-largest economy.

Washington to the Rescue

It happened this month last year: the Federal Reserve led a coordinated action by six of the worlds' central banks to ease the liquidity tensions of European banks. They pumped in dollars via currency swaps to avoid a financial meltdown; a move that did not solve anything, but bought time.

Then there are the forthcoming IMF lines of credit the US will have to fund (Congress permitting) in order to bailout the euro once the current European mechanisms prove to be insufficient - a move Germany would warmly welcome.

Naturally, Washington is likely to continue to increase its efforts to pressure Germany as the situation in Europe worsens.

On the last weekend of October, in a radio interview for the Colombian network W Radio, President Obama warned: "We can't allow Spain to unravel [...] we encourage all the countries in the region to come together and make sure that Spain, even as it is engaging in current reforms, is getting support from other countries like Germany [...] that will make a difference for the U.S. economy as well [...]"

Even big-spending Mr. Obama is worried about footing the bill to bail out Europe. American taxpayers and holders of US dollars should be apoplectic.

J. Luis Martín is an International Relations analyst and business consultant based in Spain. He is also founder of The Truman Factor, a bilingual publication focusing on world economy and politics. Martin studied International Affairs at the American University of Paris and at the London School of Economics.

WHERE ARE THOSE GOLDEN EGGS?

(Click to enlarge)

Jon Pawelko publishes the web comic Lampoon The System to poke fun at insane economic policies and educate the public on sound economics.

Click here for more cartoons and information on his just-updated anthology book, available for only $12.

WHAT WILL THE PRICE OF GOLD BE IN JANUARY 2014?

By Jeff Clark of Casey Research

While I don't like making price predictions, and certainly ones accompanied by a specific date, it's hard to ignore the correlation between the US monetary base and the gold price.

That correlation says we'll see $2,300 gold by January 2014.

There are plenty of long-term charts that show a connection between gold and various other forms of money (and credit). Most show that one outperforms until the other catches up. But let's zero in on our current circumstances, namely the expansion of the US monetary base since the financial crisis hit in 2008.

Here's the performance of gold compared to the expansion of the monetary base since January 2008:

(Click to enlarge)

You can see the trends are very similar. In fact, the correlation coefficient is an incredible +0.94.

Since the Fed has declared "QEternity," it's logical to conclude that this expansion of the monetary base will continue. If it grows at the same pace through January 2014, there is a high likelihood the gold price will reach $2,300 at that point. That's roughly a 30% rise within 15 months.

And by year-end 2014, gold could easily be averaging $2,500 an ounce. That's 41% above current prices.

Some may argue that there's no law saying this correlation must continue. That's true. And maybe the Fed doesn't print till 2014. That's possible.

But it's not just the US central bank that's printing money...

European Central Bank (ECB) President Mario Draghi has declared that it will buy unlimited quantities of European sovereign debt.

Japan's central bank is expanding its current purchase program by around 10 trillion yen ($126 billion) to 80 trillion yen.

The Chinese, British, and Swiss are all adding to their balance sheets.

The largest economies of the world are all grossly devaluing their currencies. This will not be consequence-free. Gold and silver will be direct beneficiaries.

There are other consequences, both good and bad, of gold hitting $2,000 and not stopping there. We think investors should be prepared for the following:

Tight supply. As the price climbs and attracts more investors, getting your hands on bullion may become increasingly difficult. Delivery delays may become commonplace. Those who haven't purchased a sufficient amount will have to wait in line, either figuratively or literally.

Rising premiums. A natural consequence of tight supply is higher commissions. They won't stay at current levels indefinitely. Premiums doubled and more in early 2009, and mark-ups for silver Eagles and Maple Leafs neared a whopping 100%.

Tipping point for a mania. There will be an inflection point where the masses enter this market. The average investor won't want to be left behind. Will that happen when gold hits $2,000? $2,500?

The message from these likely outcomes is to continue accumulating gold - or to start without delay. Waiting will have consequences of its own.

People say that there's nothing certain in life except death and taxes. In my view, $2,300 gold is a close second.

For ongoing guidance about physical gold and silver, as well as the large-cap precious metals stocks, try BIG GOLD today for just $129 per year, with 3-month money-back guarantee.

QUESTIONS FROM OUR CUSTOMERS

Should I Invest in a Gold ETF instead of Gold Coins?

Exchanged Traded Funds, or ETFs, have become popular in recent years because they make investing in precious metals as easy as buying regular stocks. With an ETF, there is no physical product to store, so investors don't need to worry about securing a home safe or storage facility. This can translate to a lower cost of ownership for ETFs.

However, for those seeking to protect their wealth and savings from the unraveling dollar, investing in gold through ETFs can have some major disadvantages.

For starters, ETFs compromise your financial privacy. An ETF, like any stock, must be traded through a registered broker-dealer, whose license and "Know Your Customer" policies are regulated by the government. If you've ever started even a basic account to trade stocks, you're already familiar with the huge amount of personal information an authorized broker requires, such as social security number, yearly income, and employment information.

Also, with an ETF, anytime you buy or sell shares, the transaction is automatically reported to the government.

By contrast, purchasing physical gold can be a highly private transaction. When ordering from Euro Pacific Precious Metals, the only information we need to know are your name and shipping address. We are not required to report purchases to any government regulatory agency unless there is suspicious activity, like paying with large amounts of cash. For that reason, we do not accept cash payments.

Once you receive the gold, what you do with it is up to you. You are required to report any sales of precious metals to the IRS for capital gains purposes; however, under current law, Euro Pacific Precious Metals is not required to report purchases or buybacks for a wide variety of gold and silver products. Call and ask a Euro Pac Specialist for complete details at 1-888-GOLD-160 (465-3160).

Being able to put a physical coin in your pocket is one of the best reasons to invest in gold in the first place. If there is a shock to the financial system like 2008 or worse, you will have in your possession one of the most time-honored means of saving and trading wealth. Gold coins can be used to easily barter in an emergency, because gold is recognized as real money all over the world.

Many gold purchasers take great pleasure in knowing the have the ultimate form of money in their personal, physical possession. It cannot go bankrupt; it cannot default; it cannot be devalued; and there are no questions about inspecting or taking delivery of your investment.

ETFs certainly have their place in the market as instruments for short-term speculation, or for those who value convenience. But when you need a stable, secure, and private asset, nothing beats physical gold.

THIS MONTH IN GOLD

China's Currency Rises in US Backyard

Financial Times - Two scholars from the Peterson Institute of International Economics write: "Would-be US leaders would do well to note that for probably the first time since the Second World War the dollar bloc in East Asia has been displaced. In its wake a currency bloc based on China's renminbi is emerging." Seven out of ten currencies in the region now track the renminbi more closely than they do the US dollar. This shift is occurring despire Beijing's reluctance to liberalize its financial and currency markets. Read Full Article >>

Chinese Gold Imports YTD Top Total ECB Holdings

ZeroHedge - Through the end of August 2012, China imported more gold year-to-date than the entire European Central Bank stockpile. Specifically, from January 1 to August 31, China purchased and imported a whopping 512 tons of the yellow metal. The ECB has a mere 502 tons of bullion in total. By New Year's Eve, it is safe to assume that China will have imported more gold in one year alone than the eleventh-largest official cache on earth: India's 558 tons. China's rapid shift to hard currency dovetails with its marked unwillingness since the end of 2011 to bring additional US government securities onto its books.

Reuters - The German Federal Court of Auditors, the government's accounting arm, has called on the Bundestag (parliament) to order a physical inventory check of the nation's bullion holdings. Germany owns 3,400 tonnes of gold, in large part held abroad at the Federal Reserve Bank in New York, the Banque de France, and the Bank of England. The Bundesbank (central bank) insists that written assurances from its foreign counterparts are sufficient. The auditors, unsurprisingly, disagree.

The Australian - Australian sales of the yellow metal to China have soared an eye-popping 900% during the first eight months of 2012. At $4.1 billion so far this year, gold is now Australia's second largest physical export to China after iron ore. Perth Mint is the chief supplier of bullion to China. Chinese citizens are buying gold to preserve wealth in times of escalating economic uncertainty, and China's central bank is buying aggressively to diversify away from weak-kneed western fiat currencies.

Businessweek - Beijing Antaike Information Development Company, a leading precious metals research consultancy in China, says that Chinese investors will push demand for silver up 10% next year over this year. Their efforts to preserve wealth should drive the country's silver demand to a record high. Silver has always enjoyed the advantage of being cheaper than gold in per unit terms, making it more accessible to small-scale savers. About a third of China's silver demand comes from jewelry and coins; the remainder comes from industry.